Tesla Inc. investors cheered the electric car maker’s delivery numbers, but Wall Street analysts weren’t as impressed, as some analysts expressed concern that today’s gain came at the expense of profitability and demand down the road.

The stock /zigman2/quotes/203558040/compositeTSLA-0.27%
climbed 4.6% to a two-month high Wednesday, but pared earlier gains of as much as 7.6%. Trading volume of 14.2 million shares topped the full-day average of 11.7 million shares, despite the abbreviated session.

The rally follows the announcement late Tuesday that 95,200 cars were delivered in the second quarter, more than what analysts were expecting, and well above the previous record of 91,000. The shares have soared 31% since closing at a more than 3-year low of $178.97 on June 3, but were still down 29% year to date, while the Dow Jones Industrial Average /zigman2/quotes/210598065/realtimeDJIA+0.14%
has rallied 16% this year.

The worry, analysts say, is that deliveries may have been boosted by price cuts, a pull-forward of demand given the expiring Federal tax credit, while the higher mix of lower-priced Model 3 deliveries could pressure margins and increase losses.

“While 2Q19 units were better, we still caution...that mix of vehicles (and discounting to move units) could weigh on profitability and hence 2Q19 likely sacrificed margins for units,” analyst Joseph Spak at RBC Capital wrote in a note to clients.

And J.P. Morgan analyst Ryan Brinkman wrote: “The debate will also likely turn to sustainability of demand given that 2Q was, like 4Q18, a pre-buy quarter in the U.S. ahead of another step-down in availability of federal tax credits on July 1.”

Brinkman said the magnitude of the second-quarter loss and amount of free cash flow generated should now be a key focus of investors, especially since Tesla “may have undertaken extra costs to meet delivery targets.”

Analyst Rajvindra Gill at Needham said his concerns about pulled-in demand were also reinforced by Tesla not affirming its full-year 2019 delivery guidance of 360,000 to 400,000 vehicles, considering that guidance was reiterated after the first-quarter report with “far less impressive numbers.”

Gill reiterated the underperform rating he’s had on the stock since July 2018, while J.P. Morgan’s Brinkman maintained the underweight rating he’s had for at least the past three years, and his $200 stock price target, which is about 15% below current levels. RBC’s Spak also reiterated his underperform rating.

Despite their bearish stances, the average rating of the 34 analysts surveyed by FactSet remained the equivalent of a neutral, or hold, rating.

Bernstein’s Toni Sacconaghi is one of the analysts who is neutral on the stock. He kept his rating at market perform, and but held his price target up at $325, saying Tesla’s decision to stop disclosing the number of customer vehicles in transit will make it “more difficult for investors to monitor true underlying demand in a given quarter.

“On net, we see Q2 deliveries as likely to mitigate bears’ near-term cash/liquidity concerns, but suspect that until investors have a better read on steady state Model 3 demand and its margin profile, and/or Model Y’s launch is imminent, the stock is unlikely to break out from current levels,” Sacconaghi wrote. Read more about the Model Y.

Tesla Slump Reflects Growing Skepticism of Company Vision

Tesla CEO Elon Musk said 2019 would bring an affordable electric car built in a new factory in China. But as WSJ’s Tim Higgins reports, investors may be losing confidence in that plan. Photo illustration: Laura Kammermann

Meanwhile, some analysts joined in with investors to cheer the deliveries data, with Baird analyst Ben Kallo saying the results set the stage for a strong second-quarter earnings report.

“The release is a positive step in the recovery process for the [Tesla] narrative, and we think Q2 earnings will be the next catalyst to restore confidence and reattract investors to the name,” Kallo wrote.

Tesla is expected to report second-quarter results on our around Aug. 5. The FactSet consensus for losses per share has narrowed to 48 cents a share on Wednesday from 55 cents on Friday, while the revenue consensus has increased to $6.23 billion from $6.11 billion.

Kallo reiterated the outperform rating he’s had on the stock for at least two years, and kept his price target at $355, which is 51% above current levels.

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